FMI Building Innovation Limited v Li

[2024] NZHC 3464

IN THE HIGH COURT OF NEW ZEALAND AUCKLAND REGISTRY

I TE KŌTI MATUA O AOTEAROA TĀMAKI MAKAURAU ROHE

CIV-2024-404-2366

[2024] NZHC 3464

BETWEEN

FMI BUILDING INNOVATION LIMITED

Applicant/Plaintiff

AND

LIN LI

First Defendant/First Respondent

XI SHEN
Second Defendant/Second Respondent

LIN LI and XI SHEN as trustees of the OKA TREE FAMILY TRUST

Third Defendants/Third Respondents

Hearing:	14 November 2024
Appearances:	RF Selby and PS McCollum for Plaintiff K Sun for First and Third Defendants
Judgment:	14 November 2024

ORAL JUDGMENT OF BECROFT J

Solicitors:

Russell Legal, Auckland

Capstone Law Ltd, Auckland

FMI BUILDING INNOVATION LIMITED v LI & ORS [2024] NZHC 3464 [14 November 2024]

The application

[1]                 This application to vary a freezing order comes before me in the Civil List today.

[2]                 The application is by the plaintiff, in two parts, to expand the current freezing order that it has obtained against Mr Lin Li, his wife, Ms Xi Shen, personally, and in their capacity as trustees of the Oka Tree Family Trust.

[3]                 Significant documentation has been filed. There has been vigorous argument and, in the end, reasonable discussion between the parties and the Court as to the way forward.

Background

[4]                 There is a background to this matter that I do not need to explore in any detail. Suffice to say it is alleged that Mr Li was the guarantor of a loan of just over $1 million by FMI Building Innovation Limited (FMI Building)—the plaintiff/applicant in this matter.

[5]                 The borrower, which I understand to be Mr Li’s company, went bust (put in colloquial terms) and has been liquidated. The plaintiff, therefore, in the substantive matter seeks to enforce its guarantee against Mr Li in the approximate sum of $1.245 million.

[6]                 Against that background, freezing orders have been obtained because there is the very strong suspicion that Mr Li has attempted to divest himself of assets so that any judgment against him under the guarantee would be rendered ineffective.

[7]                 It is the plaintiff’s case that Mr Li has acted dishonestly, cannot be trusted and has, as a matter of overwhelming inference, divested himself of assets, or any connection with those assets, which would form the fruits of any successful judgment against him obtained by the plaintiff.

[8]                 That is all set out in the documentation and the affidavits. I accept that Mr Li denies those allegations of dishonesty. But, in my view, that is an absolutely clear inference from all the documents. Indeed, it also seems to have been recognised on the two previous occasions when the matter came before this Court. For instance, on 26 September 2024 Wilkinson-Smith J noted in her Minute, at paragraph [14]:

[14] Given the apparent attempts already made to dissipate assets and hide that from the applicants, it is in the interests of justice that the application for freezing orders be determined on a without notice basis.

The application in detail

[9]                 Against that background, this application, first, seeks to freeze any net proceeds of sale from the property located at 8 Morewa Place, Takanini, up to the amount of $1,245,000. In fact, it is now known that property has already been sold.  It is accepted, somewhat reluctantly by the plaintiff, that the money has been transferred in its entirety to a Bank of China account. It is beyond the reach of the plaintiff. Therefore, that part of the application is withdrawn.

[10]             The second part of the application is to delete the current freezing order regarding the net proceeds of sale of another property located at 12 Emmerdale Avenue, Papakura, and replace it with a proposed order freezing any dealings with that property.

[11]             After discussion, Ms Selby refined the application. The freezing order on any net proceeds of sale of the Emmerdale Avenue property is to remain. But is extended, with the addition of freezing any dealings with the Emmerdale Avenue property as a whole.

Respondent’s position

[12]             As I understand Mr Sun’s responsible position, he consents to any mechanism that will both afford protection to FMI Building but allow the proposed marketing and eventual sale of the Emmerdale Avenue property to take place. Mr Sun’s instructions are that a sale is proposed, although there is no agreement for sale and purchase yet in existence. The property is currently on the market and is listed with Harcourts.

[13]             It is fair to say that Mr Sun is also very concerned that, while the law allows frozen assets to be used for legitimate living expenses and while the Court would ordinarily allow the frozen assets to be used for legitimate legal expenses, FMI might oppose any proceeds of sale of the Emmerdale Avenue property being used for that purpose.

Plaintiff’s position

[14]             The background is that the property was originally in the name of Mr and Mrs Li personally. However, it was transferred to the third respondent, a family trust, in circumstances that I do not need to go into but which raise the plaintiff’s suspicions that it was a mechanism to, again, enable Mr Li to divest himself of assets.

[15]             In the plaintiff’s view, the proceeds of any sale would be owned by the family trust and that is why the proceeds of sale should remain frozen. If there is any payment proposed to Mr and Mrs Li, then that should be supervised by the Court—as it must be, given the current freezing order as to those net proceeds of sale—or, at least until there is the plaintiff’s consent to any use of the proceeds of sale proposed by the trust.

Consent orders

[16]             Having set those matters out, I can now order, by consent, that the existing freezing order is extended by adding to it in paragraph [4], a new subparagraph “bb” in terms of paragraph [1](a)(ii)(b) of the interlocutory application dated 1 November 2024. However, I would add a final sentence to that paragraph as follows:

(bb) … This order can be varied or discharged with the consent of the plaintiff upon a satisfactory consent memorandum to that effect being filed in this Court. If there is no consent, which shall not to be unreasonably withheld, then the matter will need to be set down in the Civil List on an urgent basis to determine whether a proposed sale can proceed.

[17]             In my view, this expansion of the current freezing order is necessary, even given that there are proposed undertakings from Mr Li’s current lawyers to the effect that the proceeds of sale would not be paid out other than by consent or until further order of the Court.

[18]             The problem with that position is that Mr and Mrs Li and/or their trust could easily enough instruct other lawyers, unaware of this situation, to handle their conveyancing and the funds could be quickly transferred overseas and out of this Court’s jurisdiction or to parties unknown. I say that because Mr Li’s track record in this matter suggests that he would be perfectly capable of doing that.

[19]             For those reasons, it seems to me, the extension of the freezing order in the way that I have outlined, is justified and necessary and certainly in the interests of justice. I recognise it will be an inconvenience in the process for the ordinary sale and purchase of the Emmerdale Avenue property. However, it is necessary. Ms Selby has assured the Court that if the purchaser is bona fide and for value, then consent would not be unreasonably withheld. But in any case, there is the backstop that Mr Li can urgently apply to this Court.

[20]             Out of an abundance of caution, I confirm the parties’ position as follows. The practical reality of the situation is that the Oka Family Trust can continue with its current marketing and can enter into an agreement for sale and purchase for the Emmerdale Avenue property. But that agreement should be expressly conditional upon the freezing order currently in place over the property being discharged by the Auckland High Court—using the mechanism that I have already outlined—that is either by a consent order or after urgent application.

[21]             That then resolves the application. What it does not resolve is what Mr Sun has enthusiastically sought that the Court also resolve today: namely to obtain approval in advance to use any proceeds of sale for the Li’s living expenses and/or legitimate legal fees.

[22]             The Court cannot deal with that today. First, there is an issue as to whether the Trust can, in these circumstances, transfer some or all of the proceeds of sale to the beneficiaries (Mr and Mrs Li). And, secondly, given Mr Li’s track record, there would be an issue as to what are legitimate living expenses which would need to be documented in the context of his current financial position.

[23]             There is no doubt that the law allows frozen assets to be used for living expenses but the two hurdles he would need to jump is whether the assets even get to him and, if they do, what are his ordinary and acceptable living expenses?

[24]             It would not be fair for Ms Selby to consent to that hypothetical position until it is reached. If and when that issue arises, I would urge the parties to make reasonable accommodations according to the law. Otherwise, it will have to return to the Court.

[25]             I give leave to either party to bring this matter before the Court on an urgent basis in an appropriate civil list, probably on any Thursday at 10.00 am.

[26]There will be orders accordingly.

Costs

[27]             There are no reasons, in principle, why costs should not follow the event. There is the practical issue that I mentioned to Ms Selby. That arises because accepting Mr Li’s position on face value, the only potential source for payment of the costs would be the proceeds of sale of the Emmerdale Avenue property. But as Ms Selby observed, at this stage, it is impossible to know what Mr Li’s assets actually are, let alone the extent of his interests in New Zealand.

[28]             So, with that reservation, I direct that the plaintiff file succinct submissions as to costs (by which I mean no more than three pages with attachments) within 10 working days of the date of this oral judgment.

[29]             Mr Sun has 10 working days thereafter to file his response on the same basis. That is no more than three pages.

[30]             Of course, the parties may agree as to a costs position and I leave that reasonable possibility open.

Becroft J